Jm Financial Asset Reconstruction Company LTD vs. State Of Maha. Thr. Gp And Ors

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WP/7610/2023HC BombayGSTCNR HCBM01019970202312 March 2026Bench: HON'BLE SHRI JUSTICE MANISH PITALE,HON'BLE SHRI JUSTICE SHREERAM VINAYAK SHIRSAT13 pages

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Facts

JM Financial Asset Reconstruction Company Ltd. (Petitioner) sought to quash encumbrances/charges raised by the Deputy Commissioner of Sales Tax, Maharashtra (Respondent No. 2) and Assistant Commissioner of CGST (Respondent No. 3) on a property. The Petitioner is a secured creditor, having acquired rights from Cosmos Bank Limited, which had granted credit facilities to borrowers on 22.09.2010, secured by a mortgage executed on 30.10.2010. The Petitioner registered its charge with CERSAI on 30.05.2014. Respondent No. 3 issued a demand order on 28.02.2018, and Respondent No. 2 issued an attachment order on 09.09.2016, claiming dues from the borrowers/guarantor. A conflict arose regarding the priority of recovery between the Petitioner and the revenue authorities.

Held

The Court held that the Petitioner, as a secured creditor under the SARFAESI Act, has priority over the dues of Respondent Nos. 2 and 3. Regarding Respondent No. 2, the Court noted that it had taken no further action beyond issuing attachment orders and had not undertaken the specific steps outlined in paragraphs 152 and 153 of the Full Bench judgment. Therefore, mere attachment did not grant priority over the Petitioner's secured charge, especially given the Petitioner's CERSAI registration from 30.05.2014. For Respondent No. 3, the Court found no material demonstrating steps taken for attachment and sale of excisable goods, nor evidence of a certificate being sent to the Collector for recovery as arrears of land revenue, as required by Section 11 of the Central Excise Act, 1944. Consequently, the Full Bench's observations applied to Respondent No. 3 as well. The Court further noted that Section 11E of the Central Excise Act, 1944, explicitly states that the SARFAESI Act overrides the Central Excise Act concerning the first charge on property. The Court allowed the writ petition, quashing the encumbrances/charges of Respondent Nos. 2 and 3 and directing land revenue authorities to remove them, recognizing the Petitioner's priority. It was clarified that this did not preclude Respondents 2 and 3 from recovering their dues, but only determined priority.

Key Issues

1. Whether the Petitioner, as a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), has priority over the dues claimed by the State of Maharashtra (Respondent No. 2) and the Central Goods and Services Tax Department (Respondent No. 3), particularly in light of the Full Bench judgment in Jalgaon Janta Sahakari Bank Limited Vs. Joint Commissioner of Sales Tax? (Question of law) Petitioner's arguments: The Petitioner contended that as a secured creditor under the SARFAESI Act, its charge has priority. It relied on the Full Bench judgment, arguing that even if the revenue authorities' orders were prior to 24.01.2020, they failed to satisfy the procedural requirements of issuing a proclamation, as specified in the Full Bench judgment. The Petitioner also argued that its CERSAI registration predates any effective steps by the revenue authorities. Revenue/State's arguments: Respondent No. 2 (State) initially sought an adjournment to file an additional affidavit regarding steps taken after attachment. Respondent No. 3 (CGST) argued that the Full Bench's observations regarding proclamation might not apply to it, emphasizing its demand order dated 28.02.2013 was prior to CERSAI registration and that its governing statute does not mandate issuing a proclamation. However, later, Respondent No. 2 stated no further action was taken beyond attachment orders.

Sections Cited

Section 13(2), Section 26E, Section 11, Section 11E

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

905_WP7610_23.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.7610 OF 2023 JM Financial Asset Reconstruction Company Ltd. … Petitioners Vs. State of Maharashtra and others … Respondents Mr. Charles D’souza a/w. Ms. Pragati R. and Mr. Rupak S. i/b. Mr. Indrajeet Hingane for Petitioners. Ms. S. D. Vyas, Additional GP a/w. Ms. G. R. Raghuwanshi, AGP for Respondent Nos.1, 2, 4 and 5 - State. Mr. Subir Kumar a/w. Mr. Harshad Shiingnapurkar, Ms. Vaishnavi Pawar, Ms.Ashita Aggarwal and Ms. Krupa Hasurkar for Respondent No.3. CORAM : MANISH PITALE & SHREERAM V. SHIRSAT, JJ. DATE : MARCH 12, 2026 P.C. : . Heard learned counsel for the parties. 2. The petitioner has approached this Court seeking quashing of encumbrance / charge / demand raised by respondent No.2 - Deputy Commissioner of Sales Tax of the State of Maharashtra and respondent No.3 - Assistant Commissioner of Central Goods and Services Tax (CGST) in respect of a property, which forms the secured asset in the present case. The petitioner has also prayed for directions to the land revenue authorities to remove the encumbrance / charge in respect of the said property and recognize the priority of the petitioner as a secured creditor as regards its charge over the subject property. 3. The petitioner claims that the position of law is covered in its favour as per the judgement of this Court in the case of Jalgaon Janta Sahakari Bank Limited Vs. Joint Commissioner of Sales Tax, 2022 SCC OnLine Bom 1767, being a Full Bench judgement of this Court. 1/13 905_WP7610_23.doc 4. Before referring to the rival submissions and specific observations made by this Court in its order dated 18.02.2026 passed in this petition, it would be appropriate that a brief reference is made to the events leading upto the filing of the present writ petition. 5. On 22.09.2010, Cosmos Bank Limited (original lender and predecessor of the petitioner) sanctioned cash credit facilities to the original borrowers along with other such facilities. Respondent No.6 is a guarantor / mortgagor for the said credit facilities availed by the borrowers. On 30.10.2010, a Composite Deed of Mortgage and Hypothecation was executed in favour of the original lender and a mortgage was created over the secured asset with which the present writ petitioner is concerned. 6. On 30.09.2012, the original lender classified the account of the borrowers as a non-performing asset (NPA). Consequently, on 27.10.2012, notice was issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) for a specific amount. On 02.02.2013, physical possession of the secured asset was taken and a notice in that regard was published in newspapers. On 28.03.2014, the original lender assigned the rights of the debt in terms of an assignment agreement in favour of the petitioner. On 30.05.2014, the petitioner registered its charge over the secured asset with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). 7. In the meanwhile, the respondents claiming their dues towards the tax liabilities undertook certain steps on various dates, including 28.02.2018, when the respondent No.3 issued an order of demand pertaining to a specific amount under the provisions of the Central Excise Act, 1944. Similarly, on 09.09.2016, the respondent No.2 issued 2/13 905_WP7610_23.doc an order of attachment under the provisions of the Maharashtra Land Revenue Code, 1966 (MLRC) with regard to its claims towards dues payable by the respondent No.6. 8. Thereafter, notices were issued by the said respondents, inter alia, to the petitioner asserting first charge over the secured asset and therefore, a conflict arose between the petitioner on the one hand and respondent Nos.2 and 3 on the other with regard to priority for recovery of their respective claims. 9. This very question pertaining to priority came up for consideration before the Full Bench of this Court in the said case of Jalgaon Janta Sahakari Bank Limited Vs. Joint Commissioner of Sales Tax (supra). In the said judgement, the Full Bench of this Court held that a secured creditor under the provisions of the Securitisation Act, after the amendment brought about with effect from 24.01.2020, would have priority over all other dues, including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. As regards the claims made by such authorities prior to the amendment being brought into effect, certain crucial observations were made by the Full Bench of this Court in the said judgement. It was also held that if the CERSAI registration of the secured creditor, like the petitioner herein, is prior then it shall prevail. 10. On the last occasion i.e. on 18.02.2026 when this petition was taken up for consideration, we made certain observations, which are relevant for disposing of the present writ petition. In the said order, we had observed as follows:- “. Heard learned counsel for the parties for some time. 2. The learned counsel for the petitioner, inter alia, relied upon paragraphs 151 to 154 and 297 to 300 of the Full Bench judgment of this Court in the case of Jalgaon Janta Sahakari Bank Ltd. & Anr. vs. Joint Commissioner of Sales Tax Nodal 9, 3/13 905_WP7610_23.doc Mumbai & Anr., (2022) SCC OnLine Bom 1767, to assert that in the present case, even if the orders of attachment issued by the respondent-State Authorities were prior to 24th January 2020, the requirement of issuing proclamation in accordance with law, as specified in the above paragraphs of the full Bench judgment, was not satisfied and therefore, the respondent-State Authorities cannot resist the prayers made in the present petition. 3. The learned AGP submits that in the reply affidavit presently on record, although reference has been made to the attachment orders issued by the respondent-State Authorities, on the basis of which entries have been made in the revenue records, but specific reference has not been made to steps taken after the orders of attachment were issued in the form of approaching the Tehsildar and the Revenue Authority for issuing proclamation, etc. It is submitted that if such material is available, it would be an answer to the contentions raised on behalf of the petitioner. Therefore, a short adjournment is sought to file an additional affidavit, to place on record further documents, on behalf of respondent Nos.1, 4 and 5. The additional affidavit on behalf of the aforesaid respondents shall be placed on record within two weeks from today. 4. The learned counsel appearing for respondent No.3, concerning the Central Goods and Services Tax Department, made submissions, indicating that the regime discussed in paragraphs 151 to 154 of the aforesaid full Bench judgment may not apply to the said respondent. It was emphasized that the order dated 28th February 2013 issued by the competent officer of respondent No.3 was prior to the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) registration and that in terms of the governing statute, there is no requirement of issuing any proclamation etc, thereby indicating that observations made in paragraphs 151 to 154 of the full Bench judgment may not apply to the said respondent. 5. The learned counsel for the petitioner submitted that there is an answer to the said contention raised on behalf of respondent No.3, but since we are adjourning the hearing to enable the respondent-State Authorities to file an additional affidavit, we would hear the learned counsel for the petitioner on the said aspect of the matter on the next date of hearing. 6. List the petition for further hearing, at the bottom of the supplementary list, on 12th March 2026.” 4/13 905_WP7610_23.doc 11. Today when the petition is taken up for further hearing, the learned AGP appearing on behalf of respondent Nos.1, 2, 4 and 5 submitted that although an additional affidavit could not be placed on record, she had received written instructions from the Deputy Commissioner of State Tax, CM-Unit-II (Legal), Maharashtra State, stating that no further action was taken by the office of the respondent No.2 after attachment of property. The said communication containing written instructions dated 12.03.2026 addressed to the learned AGP is taken on record and marked ‘X’ for identification. 12. In the light of the said statement made, on instructions, by the learned AGP, this Court is proceeding to consider the rival submissions on the basis that the respondent No.2 could not take steps beyond issuing the attachment orders for attaching the property. 13. As regards respondent No.3, we heard the learned counsel for the petitioner as well as the respondent No.3 with regard to the manner in which the observations made in the aforesaid Full Bench judgment of this Court would apply to the facts of the present case. The learned counsel for the petitioner relied upon the aforesaid Full Bench judgement of this Court in the case of Jalgaon Janta Sahakari Bank Limited Vs. Joint Commissioner of Sales Tax (supra) and submitted that since a specific statement is now made before this Court stating that the respondent No.2 failed to take any further steps beyond issuing attachments orders for attaching the property, the petitioner is entitled to the benefit of the observations made by this Court in the said Full Bench judgement, particularly in paragraphs 151 to 154. 14. It was submitted that as regards respondent No.3, the position would not be any different, for the reason that as per Section 11 of the Central Excise Act, 1944, eventually, recovery of dues even by the office of the respondent No.3 would have to be done through the Collector as 5/13 905_WP7610_23.doc an arrear of land revenue. Therefore, the observations made in paragraphs 151 to 154 of the aforesaid Full Bench judgement of this Court would equally apply to the respondent No.3 and since the respondent No.3 has failed to demonstrate any specific steps taken under the provisions of the MLRC post-issuance of orders of demand, including the order dated 28.02.2018, the petitioner is entitled to the benefit of the position of law clarified in the aforesaid Full Bench

judgment.

15.

The learned counsel for the petitioner further submitted that as per Section 11 of the Central Excise Act, 1944, in the first place, the respondent No.3 would have to show as to whether it had taken steps for attachment and sale of excisable goods and thereupon if the amount payable was not recovered, a certificate had been issued in respect of the property in question. Since no such material was placed on record, even this aspect would inure to the benefit of the petitioner. It was further emphasized that Section 11E of the Central Excise Act, 1944 expressly provides for priority and first charge on the property in question of the secured creditor in terms of the provisions of the Securitisation Act. It was submitted that on this count also, the petition deserves to be allowed.

16.

The learned counsel for respondent No.3 sought to make a distinction insofar as the dues of CGST are concerned by stating that even if no such steps had been taken by the office of the respondent No.3 to actually recover its dues in pursuance of the demand orders / attachment orders, nothing prevents the said respondent from taking such steps, and therefore, this Court may not hold that the petitioner’s dues would have priority over that of respondent No.

The learned counsel for respondent No.3 referred to the aforesaid Full Bench judgement of this Court, particularly paragraphs 153 and 154 and sought 6/13

905_WP7610_23.doc of the said judgement, this Court held as follows:- “85. Priority means precedence or going before (Black’s Law Dictionary). In the present context, it would mean the right to enforce a claim in preference to others. In view of the splurge of ‘first charge’ used in multiple legislation, the Parliament advisedly used the word ‘priority over all other dues’ in the SARFAESI Act to obviate any confusion as to inter-se distribution of proceeds received from sale of properties of the borrower/dealer. If a secured asset has been disposed of by sale by taking recourse to the Security Interest (Enforcement) Rules, 2002 it would appear to be reasonable to hold, particularly having regard to the non-obstante clauses in sections 31 B and section 26E, that the dues of the secured creditor shall have ‘priority’ over all other including all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.”

18.

Paragraphs 151 to 154 as also paragraphs 297 to 300 of the said Full Bench judgement read as follows:- “151. However, there could be attachments orders which might have been issued much prior to giving effect to the 2011 Rules, as amended. In respect of such orders of attachment, we consider it appropriate to express our views.

152.

The procedure to be followed in terms of the CPC when an immovable property is put up for auction sale to satisfy a decree of the court is to be found in Order 21, rules 54 and 66 of the CPC. It is mandatory for the court executing the decree, to comply with the following stages before such property is sold in execution of a particular decree : 7/13

905_WP7610_23.doc (a) attachment of the immovable property; (b) proclamation of sale by public auction; (c) sale by public auction. At each stage of the execution of the decree, when a property is sold, it is mandatory that notice shall be served upon the person whose property is being sold in execution of the decree, and any property which is sold, without notice to the person whose property is being sold, is a nullity and all actions pursuant thereto are liable to be struck down/quashed. However, the proceedings before us do not concern execution of any decree.

153.

In these proceedings we are as much concerned with proclamation itself as much with attachment. Insofar as recovery pursuant to the MLR Code is concerned, not only the provisions contained therein but also the provisions contained in the 1967 Rules are to be complied with. Simply ordering an attachment is not enough; a proclamation has to be issued in the prescribed form and such proclamation must be made public by beating of drum and such other mode as specified in section 192 of the MLR Code and rule 11(2) of the 1967 Rules before the property attached is sold.

154.

We are of the considered opinion, on facts and in the circumstances, that unless attachment of the defaulter's immovable property is ordered in the manner ordained by the MLR Code and as prescribed by the MRLR Rules and due proclamation thereof is made, even the creation of charge on such immovable property may not be of any real significance, not to speak of demonstrating with reference to evidence that the transferee had actual or constructive notice of such charge. If there has been an attachment and a proclamation thereof has been made according to law prior to January 24, 2020 or September 1, 2016, i. e., the dates on which Chapter IV-A of the SARFAESI Act and section 31B of the RDDB Act, respectively, were enforced, the Department may claim that its dues be paid first notwithstanding the secured dues of the secured creditors; but in the absence of an order of attachment being made public in a manner known to law, i. e., by a proclamation, once Chapter IVA of the SARFAESI Act or section 31B, as the case may be, has been enforced, the dues of the secured creditor surely would have “priority”. In other words, if the immovable property of the defaulter is shown to have been attached in accordance with law prior to Chapter IVA of the SARFAESI Act, or for that matter section 31B of the RDDB Act, being enforced, and such attachment is followed by 8/13

905_WP7610_23.doc a proclamation according to law, the “priority” accorded by section 26E of the former and section 31B of the latter would not get attracted. * * * * *

297.

A question that comes to the fore is whether the petitioner would be deprived of the right of priority in payment on account of the measures initiated by the respondents before the registration of the security interest with the CERSAI ?

298.

Two affidavits in reply are filed on behalf of the respondents. In the first affidavit filed by Mr. Pradeep G. Kadu, Joint Commissioner of State Tax, the claim of the petitioner is resisted on the ground that the Department had lodged its claim with the petitioner-bank before the 2016 Amending Act. In the affidavit in reply filed by Mr. Prasad Joshi, Joint Commissioner of State Tax, it is contended that a demand notice was issued to K. K. Steel on February 29, 2016, levying a demand of Rs. 1,08,91746 for the period April 1, 2010 to March 31, 2011. When it was noticed that the auction sale notice was published by the petitioner on June 6, 2016, the Department apprised the petitioner by a letter dated July 7, 2016 that K. K. Steel owed sales tax dues to the tune of Rs. 1,62,58,945 plus interest thereon. The petitioner was directed to take note of the “first charge” and make a full disclosure to the prospective purchasers. It was further affirmed that on June 30, 2016, the Department had informed the Chairman of the Heritage Co- op. Housing Society Ltd. as well to take note of the first charge and to not permit transfer of the secured asset, without NOC from the Department.

299.

The aforesaid correspondence emanating from the Department, at best, shows that the Department had levied a demand of the sales tax dues on the proprietor of K. K. Steel, the borrower, and asserted that under section 37 of the MVAT Act, the State had first charge on the asset of the assessee. In the two affidavits filed on behalf of the respondents, what is conspicuous by its absence is the assertion that the respondents had ordered attachment of the secured asset in conformity with the provisions of MLR Code and the MRLR Rules. No endeavour was made by the respondents to show that the warrant of attachment and order of attachment were issued and there was a proclamation of the attachment order.

300.

Likewise, the Sales Tax Commissioners did not claim that they registered the claim with the CERSAI to adhere to the 9/13

905_WP7610_23.doc mandate contained in section 26B(4) of the SARFAESI Act. Non-registration of the claim and/or order of attachment entails the consequences envisaged by sub-section (2) of section 26C of the SARFAESI Act. Thus, dual disability sets in. First, in the absence of material to show that the first charge under section 37 of MVAT Act was enforced by a valid attachment order before the registration of security interest by the petitioner with the CERSAI, the petitioner cannot be deprived of the right of priority under section 26E of the SARFAESI Act. Secondly, with the registration of the security interest with the CERSAI on July 9, 2020, coupled with the absence of registration of the Department's demand and/or order of attachment, the claim of the respondents becomes subservient to the right of the secured creditor.”

19.

A perusal of the above-quoted paragraphs in the said judgement shows that it was authoritatively held that the dues of a secured creditor under the provisions of the Securitisation Act shall have priority over all other dues including revenues, taxes, cesses and other dues payable to the Central Government or State Government or local authority. In the said judgement, the Full Bench specifically took into consideration situation prior to the amendment of the Securitisation Act, which was brought into effect from 24.01.2020. Even with regard to the said situation, the specific observations made in the above-quoted paragraphs 151 to 154 of the Full Bench judgement provide guidance. In fact, from the above-quoted paragraphs 297 to 300 of the said judgement, it becomes evident as to the manner in which the ratio of the judgment was applied to the specific fact situation. Applying the said position of law clarified by the Full Bench of this Court in the said judgement, we find that the petitioner has indeed made out a case in its favour.

20.

In the present case, as noted hereinabove, the respondent No.2 has specifically stated that it had not taken any further action beyond issuing orders of attachment for attaching the property, and that the specific steps noted in paragraphs 152 and 153 of the Full Bench judgement were 10/13

905_WP7610_23.doc never undertaken on behalf of the respondent No.

Therefore, by simply ordering attachment of the property for recovery of dues would not give priority to the said dues over the dues of the secured creditor like the petitioner under the provisions of the Securitisation Act, particularly when the petitioner has CERSAI registration from 30.05.2014. 21. As regards respondent No.3, although reliance was placed on the attachment order / demand order dated 28.02.2018, we find that no 11/13

905_WP7610_23.doc by the said statutory provision. The said Section 11E of the Central Excise Act, 1944 reads as follows:- “11E. Liability under Act to be first charge.— Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest, or any other sum payable by an assessee or any other person under this Act or the rules made thereunder shall, save as otherwise provided in Section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993), the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) and the Insolvency and Bankruptcy Code, 2016, be the first charge on the property of the assessee or the person, as the case may be.”

23.

We, therefore, see no reason to deny the benefit of the said judgement to the petitioner herein, which is admittedly a secured creditor and is seeking to recover its dues under the provisions of the Securitisation Act in accordance with law. In such a situation, the encumbrance / charge shown on the said property by the respondent No.2 and the demand / attachment order issued by the respondent No.3 in respect of the said property ought not to prevail over the charge of the petitioner as a secured creditor. Therefore, we are inclined to allow the writ petition.

24.

It is made clear that the writ petition being allowed does not mean that this Court has held that respondent Nos.2 and 3 are otherwise not entitled to recover their dues. Respondent Nos.2 and 3 can proceed in accordance with law, but so far as priority is concerned as per the position of law, noted hereinabove, the dues of the petitioner as secured creditor clearly have priority over those of the said respondents.

25.

In view of the above, writ petition is allowed in terms of prayer clauses (a), (b) and (c), which read as follows:- “a. This Hon’ble Court be pleased to quash and set aside the encumbrance and / or charge of Respondent No.2 and 12/13

905_WP7610_23.doc Respondent No.3 noted in the land revenue records of the property of Respondent No.6, being the Secured Asset which is exclusively mortgaged to the Petitioner; b. This Hon’ble Court be pleased to instruct Respondent No.4 and Respondent No.5 being the concerned land revenue authorities to raise the charge / encumbrance of the Respondent No.2 and Respondent No.3 in the Secured Asset and discharge / de-note in the records the charge / encumbrance as recorded in respect of the Secured Asset, so that the Secured Asset would be free from any encumbrance from Respondent No.2 and Respondent No.3 by carrying out the necessary mutation entry. c. This Hon’ble Court be pleased to pass an order declaring that by virtue of the provisions of Section 26E of the SARFAESI Act, 2002, the Petitioner has a priority of charge on the subject property over and above the alleged charge of Respondent No.2 and Respondent No.3.”

26.

Consequential steps shall be taken by respondent Nos.4 and 5 within a period of four weeks from today.

27.

Pending applications, if any, also stand disposed of.

28.

Needless to say, if the petitioner finds that after its dues are satisfied there is any surplus amount remaining, it shall notify respondent Nos.2 and 3 accordingly. (SHREERAM V. SHIRSAT, J.) (MANISH PITALE, J.) 13/13 Minal Parab MINAL SANDIP PARAB SANDIP PARAB Date: 2026.03.13 14:52:57 +0530

Reproduced from the public record of the Bombay High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.